People's Daily Online -- Commentary: Releasing the power of private financing
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UPDATED: 10:08, July 09, 2005
Commentary: Releasing the power of private financing
Despite its unauthorized status, private financing has grown into an appreciable force in the money market, leaving a mixed impact on China's economy.
In Zhejiang, Fujian and Hebei provinces, about 15 percent to 25 percent of local loans were generated last year by private financing, which refers to capital-raising activities beyond banks and financial institutions.
In less developed Shangrao of east China's Jiangxi Province, a total of 1.4 billion yuan was generated by private financing, taking up one-third of the capital raised locally, as a central bank report on 2004 China's financial performance revealed.
Private capital whose size is estimated around two trillion yuan (about 241.84 billion US dollars), or one-sixth of the country's total personal savings deposits, is anxiously making its way into the money market to prove its undeniable presence.
Restricted by the current financial system, however, the unorthodox financing means didn't go far among large state-owned or joint-stock enterprises but was cornered into small and medium business, which, failing to win over the favor of bankers and deep pockets, seems always capital-hungry.
With more than 70 percent of bank loans channeled to state-owned companies every year, non-public companies, especially small and medium ones, have to scramble for the remaining 30 percent. Yet it is these malnourished small and medium companies that have contributed nearly 70 percent of the country's gross domestic product.
Imagine the day when private financing is legalized, what an impetus these so-called "little brothers" of large state-owned companies would get?
The central bank certainly can't afford to neglect the growing impact of private capital. As most Chinese companies still follow the tradition of raising funds from banks rather than the stock market, private financing has actually eased the credit pressure of domestic banks toward burgeoning non-public sectors and thus helped financial institutions reduce their credit risks.
After years of trial and error, private capital has learned a smart way of making money: it's risk-averse and highly particular about the creditability of borrowers. As the relationship between creditors and debtors is often closer than that involved in traditional financing, creditors are allowed to track the utilization of their loans and thus effectively defuse credit risk.
The flip side of private financing is that, without legalized outlets, profit-hunting private capital may turn into "hot money" and stoke up troubles in overheated sectors. Lessons have been drawn from the real estate, iron and steel, coal, hydroelectric and small dockyard industries.
It may also be manipulated by loan sharks to deal a painful blow to the country's money market or become a convenient shelter for criminals to launder money.
Since sunshine has been the best disinfectant, private financing, a growing force with a mixed impact on China's money market, must be legalized as early as possible. Besides, if we don't see the presence of private capital, there will be no way to tell if the country's money supply is right.
Source: Xinhua
People's Daily Online -- Commentary: Releasing the power of private financing
UPDATED: 10:08, July 09, 2005
Commentary: Releasing the power of private financing
Despite its unauthorized status, private financing has grown into an appreciable force in the money market, leaving a mixed impact on China's economy.
In Zhejiang, Fujian and Hebei provinces, about 15 percent to 25 percent of local loans were generated last year by private financing, which refers to capital-raising activities beyond banks and financial institutions.
In less developed Shangrao of east China's Jiangxi Province, a total of 1.4 billion yuan was generated by private financing, taking up one-third of the capital raised locally, as a central bank report on 2004 China's financial performance revealed.
Private capital whose size is estimated around two trillion yuan (about 241.84 billion US dollars), or one-sixth of the country's total personal savings deposits, is anxiously making its way into the money market to prove its undeniable presence.
Restricted by the current financial system, however, the unorthodox financing means didn't go far among large state-owned or joint-stock enterprises but was cornered into small and medium business, which, failing to win over the favor of bankers and deep pockets, seems always capital-hungry.
With more than 70 percent of bank loans channeled to state-owned companies every year, non-public companies, especially small and medium ones, have to scramble for the remaining 30 percent. Yet it is these malnourished small and medium companies that have contributed nearly 70 percent of the country's gross domestic product.
Imagine the day when private financing is legalized, what an impetus these so-called "little brothers" of large state-owned companies would get?
The central bank certainly can't afford to neglect the growing impact of private capital. As most Chinese companies still follow the tradition of raising funds from banks rather than the stock market, private financing has actually eased the credit pressure of domestic banks toward burgeoning non-public sectors and thus helped financial institutions reduce their credit risks.
After years of trial and error, private capital has learned a smart way of making money: it's risk-averse and highly particular about the creditability of borrowers. As the relationship between creditors and debtors is often closer than that involved in traditional financing, creditors are allowed to track the utilization of their loans and thus effectively defuse credit risk.
The flip side of private financing is that, without legalized outlets, profit-hunting private capital may turn into "hot money" and stoke up troubles in overheated sectors. Lessons have been drawn from the real estate, iron and steel, coal, hydroelectric and small dockyard industries.
It may also be manipulated by loan sharks to deal a painful blow to the country's money market or become a convenient shelter for criminals to launder money.
Since sunshine has been the best disinfectant, private financing, a growing force with a mixed impact on China's money market, must be legalized as early as possible. Besides, if we don't see the presence of private capital, there will be no way to tell if the country's money supply is right.
Source: Xinhua
People's Daily Online -- Commentary: Releasing the power of private financing
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